Do Roth conversions still make sense today?

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Millions of Americans are converting their traditional tax-deferred IRAs and 401Ks into tax-free Roth accounts.

CNBC reported last year that Roth conversions were up 46% year-over-year. Google Trends data shows interest in Roth conversions is as high as it’s been in at least 10 years.

Why are Roth conversions so popular?

The goal of a Roth conversion is to pay less taxes in retirement. With a Roth conversion, you pay taxes on the amount of money you convert, at current tax rates. Then you never have to pay taxes on the money in that Roth account again – no matter how much it grows, or what tax rates are in the future.

The tax savings could last a lifetime – and even be passed on to your heirs. This one move can reduce your lifetime taxes by tens of thousands, if not hundreds of thousands of dollars. Even if tax rates don’t go up.

One big reason why families have done so many Roth conversions has been to take advantage of today’s 40-year low tax rates.

The tax cuts included in the Tax Cuts and Jobs Act during President Trump’s first term expire at the end of this year. But with the potential for more years of lower tax rates, many are questioning whether a Roth conversion still makes sense today.

Retirement experts Ryan Thacker and Tyson Thacker, from B.O.S.S. Retirement Solutions offer some answers about whether or not a Roth conversion is right for you. They offer a free B.O.S.S. Retirement Tax-Savings Analysis, as described below, and regularly help local families decide if a Roth conversion is a smart move for their situation.

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Roth conversions could continue to be a smart financial decision for many years to come.

–Tyson Thacker, B.O.S.S. Retirement Solutions

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Roth conversions have been extremely popular with Utah families. But it’s not just because of the current low tax rates.

Here are five reasons why you should consider converting your traditional IRA or 401K into a Roth today:

Tax-free growth

Once your money is in a Roth account, it grows tax-free. That means when you take money out in retirement, you don’t have to pay a dime in taxes on it. The stock market has doubled on average every seven years – would you rather pay taxes on $250,000 or $500,000? The answer is obvious.

No required minimum distributions

Traditional IRAs and 401Ks force you to withdraw money (and pay taxes on it) once you hit age 73. For some retirees, this triggers the biggest tax bills of their lives. When you convert to a Roth, both the principal and the growth on your investments are tax-free.

Lower taxes for your heirs

If you don’t convert your traditional IRA or 401K into a Roth, you could be leaving your spouse, kids, or grandkids a giant tax bill.

More control over your retirement income

Since Roth withdrawals aren’t taxed, you can withdraw any amount of money without worrying about taxes, or getting pushed into a higher tax bracket.

Pay taxes now, avoid higher taxes later

Right now, tax rates are relatively low. But they could still increase significantly during your retirement. Paying taxes on your IRA or 401K today could mean keeping more of your money in the long run.

Regardless of what happens in Washington in the next few years, these are all strong reasons to consider a Roth conversion today.

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Don’t expect low tax rates to last forever.

–Ryan Thacker, B.O.S.S. Retirement Solutions

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One question that keeps coming up is whether Trump’s tax policies are a reason to put off Roth conversions.

Extended tax cuts may buy you a few more years to spread out your conversion and lower the total taxes paid. But this is still a great opportunity for many families. Because it’s not realistic to expect that lower taxes will last forever – or even for a 20- to 30-year retirement.

The Congressional Budget Office reports that the U.S. is on track to hit $50 trillion in national debt within the next 10 years. That’s nearly double what it was five years ago.

And while cutting wasteful government spending is great, so far the savings are only in billions. But trillions of dollars of savings are needed to make a dent. If they can’t significantly reduce spending, they’ll need to significantly raise taxes.

Plus Social Security and Medicare are in big financial trouble, and it could impact your benefits within the next decade.

The hard truth is that you might need your money to go a lot further in retirement.

And one of the fastest, easiest, and most reliable ways that could ensure your money goes further in retirement is with effective retirement tax-planning – including Roth conversions.

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Converting to a Roth could deliver massive tax savings in retirement, but getting expert guidance is essential.

–Tyson Thacker, B.O.S.S. Retirement Solutions

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A Roth conversion is simple in principle. You move the money from a traditional IRA or 401K into a Roth account. You pay taxes on the amount converted. And you’re done paying taxes on the money now inside the Roth – forever.

If you’re not careful, it would be easy to trigger needless taxes and penalties. There are important decisions a fiduciary financial advisor can help you consider, including:

• Will you pay taxes from the balance of the account, or from another source? This could significantly impact your long-term account value.
• Will you do the Roth conversion this year, or in stages over the next few years? Managing tax brackets could significantly lower the cost of conversion.
• How will this conversion impact your total retirement savings? Higher Medicare premiums are just one potential cost, if you’re not careful.

A Roth conversion could be right for you – and potentially save you tens of thousands, or even hundreds of thousands of dollars in lifetime taxes. But you need to execute this correctly in order to get the full benefit.

Should you consider converting your traditional IRA or 401K into a Roth?

B.O.S.S. Retirement Solutions has helped thousands of Utah families plan and prepare for retirement, including navigating Roth conversions. They offer a free, customized B.O.S.S. Retirement Tax-Savings Analysis that shows you exactly how much money you could save.

During this quick appointment, one of their fiduciary financial advisors will gather some basic information from you. Then they determine the tax planning strategies that are best-suited for your specific situation. Next, they’ll sit down and freely share these strategies with you, so you can see exactly how much money you could save.

While some financial advisors charge thousands of dollars for a customized retirement tax analysis, B.O.S.S. Retirement Solutions offers this service for free, even if you’re not a client.

This offer could be especially beneficial for families who have saved at least $200,000 up to several million dollars for retirement.

To schedule your free, no-obligation B.O.S.S. Retirement Tax-Savings Analysis, click here to request your free Retirement Tax-Savings Analysis.

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About the Authors: Tyson Thacker and Ryan Thacker are the CEO and President of B.O.S.S. Retirement Solutions. They’ve helped thousands of area families plan for a better, more secure retirement. They are published authors of the book, “The B.O.S.S. Retirement Blueprint,” and are frequently featured on NBC, CBS, and ABC TV, and on local radio stations. They are a five-time winner of Utah’s Best of State Award and have seven offices located throughout the Wasatch Front.

This is for illustrative purposes only, results may vary. Advisory services offered through B.O.S.S. Retirement Advisors, an SEC Registered Investment Advisory firm. Insurance products and services offered through B.O.S.S. Retirement Solutions. The information contained in this material is given for informational purposes only, and no statement contained herein shall constitute tax, legal or investment advice. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should seek advice on legal and tax questions from an independent attorney or tax advisor. BOSS submitted applications and paid application fees to be considered for the Utah Best of State for Retirement Planning awards. The award results were independently determined by the awarding organization’s criteria (https://www.bestofstate.org/about.html) and the information BOSS provided in the applications. BOSS received the Utah Best of State award in 2019, 2020, 2021, 2022, and 2023. Our firm is not affiliated with the U.S. government or any governmental agency. Marketing materials provided by Infinity Marketing Services.